Falling prices in December capped a year of deflation

CAMBODIA experienced full-year consumer price index (CPI) deflation of 0.7 percent in 2009, San Sy Than, director general of the National Institute of Statistics (NIS), said Tuesday.

December CPI capped an unusual year for price trends in the Kingdom, as the index fell 0.1 percent month-on-month but jumped 5.3 percent in December on prices a year earlier due to the low base at the end of 2008 – when the global economic crisis began to affect Cambodia, analysts said.

The rate matched a December projection by the International Monetary Fund (IMF), which foresaw a 5 percent annual rise in prices year on year, “mainly as base effects from sharp declines in commodity prices fall out of the consumer price index”.

Still, overall inflation was sharply down on 2008, when prices rose in August and September at rates above 20 percent and the economy boomed, at least for the first three quarters.

Food prices – which dropped 1 percent – were again at the centre of the continued month-on-month fall in prices in December, the third month in a row that CPI declined, according to new NIS figures.

October was the only month last year in which month-on-month and year-on-year CPI moved in the same direction, falling 0.3 percent and 1.6 percent, respectively, highlighting the shift in base prices and larger effect of the economic crisis upon the Kingdom over the past year and a half.

“A weak base in late 2008, when global commodity prices fell sharply owing to the financial crisis, partly explains December’s year-on-year rise in Cambodian consumer prices,” Nick Owen, a Beijing-based Cambodia specialist at Economist Intelligence Unit (EIU), said by email Tuesday. “The continued month-on-month fall is more surprising, but we’re not talking about large movements here.”

Although Owen downplayed the trend, he said “it may be a sign that demand-side pressures are still weak”.

Market dealers and consumers in Phnom Penh told the Post last month that although they had barely noticed falling food prices, the lack of activity was more tangible as demand had been hit by falling purchasing power.

Up and down year

Monthly versus yearly data paint a conflicting picture

In terms of inflation, 2009 became confusing - were we in a period of inflation or deflation? Overall last year, prices fell 0.7 percent – a year of deflation, but only in October was the annualised and month-on-month
figure in the same territory - in the case both were negative. This trend was caused by the base figure, which fluctuated as inflation skyrocketed in August 2008 but slumped spectacularly as the crisis hit in Q4.
Source: National Institute of Statistics

Food prices at the farmer-to-wholesaler level have remained fairly stable since the start of the harvest in November.

“We don’t see [the dealers’ purchase] price changing up to now,” Phou Phuy, president of Cambodia Rice Millers Association, told the Post on Tuesday, referring to the start of the harvest two months ago until this week.

Farmers sold normal rice to dealers at US$214 per tonne in November 2008, he said, which had risen 12 percent to $240 per tonne in November, reflecting the year-on-year CPI increase that continued to the beginning of 2008. But prices have remained static since November, he added.

This month, petrol stations have raised both petrol and diesel prices because of price rises on global markets compared with the crash a year ago. That trend was briefly halted Monday in New York as crude oil fell to its lowest level of the year – at just over $77 a barrel – but many analysts say the blip may be temporary.

“Higher oil prices will put upward pressure on the cost of goods and services in Cambodia,” Owen said. “This additional cost will inevitably be passed on to consumers.”

The EIU said Tuesday it was maintaining its projection of 5.9 percent inflation rate for 2010. This is on par with the IMF, which forecast “mid-single digits” in a report last month, “… although upside risk remains, possibly stemming from a more expansionary fiscal stance, a sharper depreciation of the US dollar vis-a-vis other major currencies, and/or higher oil prices than currently envisaged,” it said.

San Sy Than said the NIS was forecasting a much lower rate – about 1 percent.

“According to our forecasts, [there will be] some price increases in January and February,” he said.

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